How to Buy a House at a Foreclosure Auction

A lesser known secret about the real estate market is the foreclosure auction. Every Friday at almost every courthouse in the country, hundreds of houses that have been foreclosed upon are for sale at public auction for a fraction of their original cost. Typically the auctions are held outside on the county courthouse steps or just inside the main entrance. There are no signs, buzzers, bells or whistles. All who gather there clandestinely emerge out of the woodwork as the hour strikes 10 a.m. The auction takes place rain or shine. All interested buyers must verify their funds before they can bid. The faces of the buyers range from vulturous investment groups who make themselves known, to independent real-estate agents, couples, students and stay at home moms all hoping to turn a profit. At the end of every weekly auction, hundreds of homes have been sold for a fraction of their real market value and many people really do find buried treasure by doubling or tripling their profits.

Difficulty:

Challenging

Instructions

1. Daily Journal of Commerce

   Understand that in order to buy a house at a foreclosure auction you must do your homework, most of which can be done at home with a computer and a telephone. You must research the pending sale list of houses in your area. To do this you must find a foreclosure website with accurate information. The Daily Journal of Commerce is one of the most reliable and versatile sources of accurate foreclosure information. Many websites on Google that fall under "foreclosure" are websites selling bogus information to newbies. The Daily Journal Of Commerce costs about $350.00 for a year's membership. This initial investment is worth it because it can save you tens of thousands of dollars on buying your next house. After you have joined the Daily Journal of Commerce, you can log on anytime. Click on "Real Estate," "Foreclosures" and the pending sale date in your desired county for a complete list of homes with a general description being sold at public auction in your area. Auctions are generally held every Friday at 10:00 am at your local county courthouse. The auction location and date will be on the Daily Journal Commerce report next to the properties address.

2. Keep in mind that foreclosure information is subject to change daily because an owner may at the last-minute pay up and cancel the sale. Foreclosures are often postponed weeks, even months as distressed owners try to buy more time. Therefore, you must research the houses you want right up to the sale date. In order to research the house up for foreclosure auction, or trustee sale as it is called, you must contact the trustee name and give them the trustee sale number on your Daily Journal of Commerce report to obtain the latest information on the auction. There are different trustee companies that handle different properties. You must contact the trustee of each sale you are interested in to find out more about it. Some trustees offer convenient websites complete with color pictures and background information about the property. Smaller trustee companies necessitate a phone call.

3. 

   Understand that the trustee is only legally allowed to reveal the date, time and place of the auction, and whether it has been postponed or not,(they often are postponed as owners buy more time), and, if available, what the opening bid will be. The opening bid is set by the benefactor and the bidding starts there. All interested bidders must possess at the time of the auction, the full amount for which they intend to bid in the form of cashier's checks or cash. If you don't know what the opening bid will be before the auction, and often you don't, how do you know how much to bid? The answer is only as much as you can afford. You must do your research on any given house and determine what its dollar value is to you, and have a set ceiling limit on the amount you will bid. You can not bid more than you have. Personal checks, credit cards, approved loans and trips to the bank are not allowed. You must decide what your budget is in advance, and bring that amount in the form of cashier's checks or cash. The cashier's checks can be made out to you, and if you are the winning bidder, you simply sign your checks over to the company's name that you bought it from. There are usually four of five different trustee companies and by making the cashier's checks out to yourself instead of a specific company, it leaves you open to bidding on properties owned by different trustee companies. If you don't get one, you can bid on another.

4. Know that the buyer is responsible for multiple mortgages and tax liens connected to the property. You can research that by doing a title search on the house of interest through the Daily Journal of Commerce website. There are also other websites that do this, usually for a fee. You want to be sure that at the time of the auction the that you are bidding on the first and only mortgage on the house, because if there exists a second mortgage, you are responsible for that too. You also want to search the public records through the Daily Journal of Commerce website or a similar website to be sure that there are not tax liens on the property or the individual (grantor) of the property, because you will also be responsible for any taxes due on the property at the time of the auction. The ideal is to find a house with a first mortgage and no tax liens that you can by for half or a third of its fair market value. That way, the price you pay at the auction, including title and transfer fees, buys you the deed to the house free and clear, no more payments--it is a done deal.

5. If possible, drive by the house and get a visual inspection or Google a street map picture of it. Often, there are still tenants living in the house and it is not advisable to approach them independently as they may be distressed. Let the professionals handle the negotiations with the tenants while you get all the information you can via a title search, public records search, and a drive by visual of the place.

Tips & Warnings

• Bring a friend to the auction with you because there is safety in numbers especially if you are going to verify funds.

• Buyer beware: The auction sale is final and no refunds will be made. It is entirely up to you to do the research on your potential investment yourself. Do not buy a house with a second or third mortgage or a tax lien, because you will have to pay for it. If you do your research well, you could realize huge profits, as in 50 to 75 percent.

Resources

• Daily Journal of Commerce